Managing money for an elite market

Written by: Petr Vykoukal
Photo by: Tomáš Kubeš, www.isifa.com

On the Czech market you can find anything from nicely packaged retail products to truly exclusive, tailor-made services under the name private banking. Market competition so far tends towards the former, but many banks are preparing to enter true “private banking”.

Milan Vančík

SO FAR, PRIVATE BANKING in the Czech Republic is dominated by players specializing in just a few client segments. ČSOB, Živnobanka, HVB, Commerzbank, and Citibank are strong players in this field, while others are also poised to claiming their place. Česká spořitelna is looking toward strenghtening its positions in the regions. Komerční banka, which currently offers top-tier clients only individual asset management, would like to expand its position on the market and develop its services further. But not only domestic players are fighting for Czech riches. Since the beginning of the ’90s, many western European private banks, mainly from Switzerland and Luxembourg (see sidebar p. 40), are competing for wealthy clients, as are smaller domestic banks (e.g., J&T Bank), as well as specialized firms like Slavia Capital (better known for investment banking) and the recently founded Glisco.

Ticket to the exclusive club
The possibility of taking advantage of private banking has always been reserved for a narrow group of clients. At individual banks the definitions of this narrow group differs greatly, but most are based on the requirement of entrusting the bank with a pre-defined sum at the least. But it’s always necessary to take this limit as liberally applied, and many bankers acknowledge that they happily accept as clients people who may not currently meet the limit but have the potential to meet or exceed it in the future. Besides the banks that offer premium banking under the name of private banking, Citibank has the lowest limit – inclusion in its CitiGold Wealth Management requires a mere CZK 1.5 million. Its closest competitor requires twice as much – CZK 3 million qualifies for this service at Živnobanka and Česká spořitelna. But as Martin Burda, director of the investment product department at ČS, points out, “we definitely don’t want to say that we aren’t interested in bigger clients.”
However, because many other banks have set their lower limits around CZK 3 million, there may well be a crush in this segment. Which could be why Citibank lowered its criteria – a few years ago it required at least 4 million crowns. ČSOB is heading in the opposite direction. While 5 million crowns qualified one for private banking there a few years ago, today 10 million are required. The “toughest” requirements are imposed on Czech clients by the local branch of Commerzbank of Germany, which accepts clients with at least half a million euros (CZK 15 million).
However, money alone won’t buy access to a private banker. Patrik Tkáč, the chairman of the board of J&T Banka, notes that aspiring clients must also bring some added value, such as being the owner of a firm. “Our investment banking division helps clients with their firms, and then we help sell them, and the clients can then use the assets to participate in our future projects,” he explains. Non-banking firms don’t offer lower limits for private banking, either. Glisco, a firm that specializes in private banking, requires at least CZK 10 million. Slovak Slavia Capital, which focuses on investment banking and offers participation in its projects to private clients (like J&T Banka), sets a minimum of SKK 5 million (CZK 3.8 million). However, according to Rastislav Vasilišin, director of Slavia Capital’s Wealth Management division, the average amount of managed assets per client exceeds SKK 20 million.
The fact that some banks are decreasing their limits bears out that they are endeavoring to change the market segments they serve. Banks on foreign markets may serve three client segments – retail, premium, and private banking. But in this country banks usually serve only two segments, and what is called “premium banking” abroad (see sidebar, p. 36) is called private banking here.

Martin Burda

Always something extra
“Private banking is the administration of financial assets owned by wealthy individuals and families,” says Milan Vančík, senior director of private banking at Živnostenská banka. “In some countries private banks also advise clients on investing in art or real estate,” he adds. But Czech banks as yet don’t generally offer such services. The “as yet” qualifier is important. Martin Burda notes that in the future at Česká spořitelna they would like to make use of the synergy with Realitní společnost ČS and offer clients real estate consulting.
However, for the complete picture of private banking tailor-made banking must be supplemented by other financial and additional services. “Our goal is to comprehensively take care of the client’s family,” explains Miroslav Dvořák, the executive director of ČSOB Private Banking. So besides banking and investment services, ČSOB Private Banking also offers its clients advantageous insurance, and it can also help with many other issues like mediating contacts with first-rate physicians, etc. Clients of private bankers often have easier access to cultural or sports events. For example, Patrik Tkáč says that clients who want Sparta tickets need only call, and they get the best seats (ed. note: J&T owns the Sparta Praha soccer club). Eva Blumental, the head of the Private Banking department at Citibank, notes that besides banking services, their private banking clients can enjoy advantages in many non-banking areas such as travel, legal services, and culture.
” Private banking is the administration of financial assets owned by wealthy individuals and families,” says Milan Vančík, senior director of private banking at Živnostenská banka. “In some countries private banks also advise clients on investing in art or real estate,” he adds. But Czech banks as yet don’t generally offer such services. The “as yet” qualifier is important. Martin Burda notes that in the future at Česká spořitelna they would like to make use of the synergy with Realitní společnost ČS and offer clients real estate consulting.
However, for the complete picture of private banking tailor-made banking must be supplemented by other financial and additional services. “Our goal is to comprehensively take care of the client’s family,” explains Miroslav Dvořák, the executive director of ČSOB Private Banking. So besides banking and investment services, ČSOB Private Banking also offers its clients advantageous insurance, and it can also help with many other issues like mediating contacts with first-rate physicians, etc. Clients of private bankers often have easier access to cultural or sports events. For example, Patrik Tkáč says that clients who want Sparta tickets need only call, and they get the best seats (ed. note: J&T owns the Sparta Praha soccer club). Eva Blumental, the head of the Private Banking department at Citibank, notes that besides banking services, their private banking clients can enjoy advantages in many non-banking areas such as travel, legal services, and culture.

How many clients are there?
According to an analysis by the British firm Scorpio Partnership, a consulting firm for private banks, wealthy Czechs worth one to five million dollars control property worth a total of over 25 billion dollars. “In this country there are currently about 10,000 people with financial assets of over one million dollars,” says Tomáš Strnad, Glisco’s general director. “However, these assets aren’t always deposited with or managed exclusively by banks in the Czech Republic,” he adds. Some of the private bankers we spoke with see this figure as slightly exaggerated, while others see it as possible. Tomáš Končický, head of private banking at Commerzbank, is in the latter group, and points out that there will be hundreds of elite athletes alone who ply their trades abroad who will meet these criteria in a few years.
These people compose only a small group among wealthy Czechs. The question is what property is included – if real estate in counted, then the estimate can be more realistic than investable assets. But this doesn’t involve the definition of the potential market, because, for instance, a recipient of restituted property who owns two apartment buildings in Vinohrady in Prague is, true, a millionaire in dollars, but is of no interest to a private banker since all his property is in real estate. There is a far larger “throng” on the lower rungs of the ladder. If you lower the limit to, say, three million, there are several times as many clients. Burda’s personal opinion is that there are between 30,000 and 50,000 Czechs with investable assets over CZK 3 million, while Vančík estimates that over 35,000 households exceed this limit.
There will also be large differences in the attractiveness of segments according to their residences. In Prague, where there is the greatest competition among private banking institutions, a person with tens of millions of crowns will be one of many, but outside the capital city there won’t be so many. This also certainly influences the interest of several players in the rest of the republic. Mainly, serving smaller (with on the order of millions of crowns) out-of-Prague clients from Prague needs not be too effective. Česká spořitelna is basing its strategy on this, and wants to make use of its extensive network of branches. “We’ll be unbeatable outside of Prague,” says Burda of the bank’s expansion plans. Another ČS strength, besides its branch network, could be the fact that it manages the accounts of many small and mid-sized firms whose owners often keep their money in the bank.
In recent years the composition of clients has gone through several waves of changes. The first were recipients of restituted property who wanted to sell it. Starting in the mid-1990s, Miroslav Dvořák was in charge of managing the assets of individual clients and firms for Patria Finance. At that time individuals had to have at least CZK 1 million to qualify, and the clients were almost exclusively recipients of restituted property. But according to Miroslav Dvořák, at the end of the ’90s the market started changing, and the ranks of clients were extended to include Czech partners and top managers of foreign firms. Other arriving groups in the following years were, and above all are, entrepreneurs who build successful firms and managed to sell them advantageously. According to most of the bankers we spoke with, this group will represent the largest potential market in the coming years.

Private and “private” banking

Miroslav Dvořák

A glance at the offers of most of the banks operating on the Czech market gives one the impression that they all offer private banking. But deeper research shows that this doesn’t mean the same thing at them all.

“Private banking should have its own distribution network apart from the bank, its own private bankers, and its owned products tailored for clients,” summarizes Miroslav Dvořák, the senior director of Private Banking at ČSOB. But what many banks on the Czech market offer as private banking doesn’t meet these criteria.
They often offer clients standard products through personal bankers who “skip” the counters when serving wealthy clients. In order to make the client feel like he’s getting something extra, he may get coffee and be served in a nicer environment. This approach is sometimes called the “red carpet” treatment, but it would be more aptly called by its true name, premium banking, somewhere between retail and private banking. Tomáš Strnad, the general director of Glisco, which specializes in private banking, sums it up well. He sees the main difference in that “a private banker creates products to suit the client’s needs, while a personal banker tries to sell something his bank has already created over coffee.”
Asset management is another service that is often used with the term private banking, although it’s actually but one (albeit the most important) of private banking’s services. It involves investing clients’ money. Some banks or investment companies that don’t offer private banking at least offer their wealthy clients asset management. Komerční banka is one such bank, currently not offering private banking as such, but providing wealthy clients with individual asset management. This is contingent upon at least CZK 10 million that can be invested for at least six months.
According to these parameters, this could be a private banking service, but to be real private banking it would have to be linked to banking or other services. “Cities and municipalities are our largest client segment, but our customers also include firms and individuals,” explains Radek Ondra of Komerční banka. Asset management need not be exclusively for the very rich, it could be a way to acquire as clients people without sufficient assets to qualify for private banking. For example, Commerzbank, which requires at least CZK 15 million for private banking, offers asset management starting at CZK 1 million.

Petr Vykoukal

The language of banking

Monika Fraňková

An increase of foreign nationals in the Czech Republic has motivated local banks to adapt their services and products.

“Finance is a sensitive issue, so most people feel more comfortable banking in their native language,” says Monika Fraňková, manager of Česká spořitelna’s Expat Center, which opened shop in January 2004 and has signed up more than 500 clients, adding dozens each month. The office promises not only advice, but also documentation in the three major EU languages: English, French and German. With a target clientele of middle to top managers, entrepreneurs, and embassy employees, ČS figures it has a few thousand potential customers.
Similarly, Komerční banka recently expanded its foreign customer desk to 19 branches – with offices in all the regional capitals – from an original two it started a couple of years ago, and, according to Jan Pokorný, the bank’s executive director of distribution channels, the network will continue to expand. (While ČS says it has customers nationwide, it plans to maintain only its eight-person central office, with a possible second location in Brno. Clients outside Prague are able to communicate through email, phone and fax.)
Although the product offer isn’t different, the two groups main advantage is documentation in the three EU languages. Both groups can also advise clients on banking, tax and legal matters, for example, how to qualify for building savings subsidies. ČS’s Fraňková says that mortgages have become a big focus among European clients now that red tape has been cut since EU accession. Besides mortgages, the Expat Center is also starting to concentrate on lesser-known services, like using leasing to get a second family car. “The focus right now is on improving [our existing services],” says Rudolf Quell, the group’s project manager.
So far, no other banks have announced plans to open special departments to service foreign clients – which doesn’t mean they aren’t paying attention to this group. “There are certainly foreign customers among eBanka’s clients,” says Pavla Paseková, bank spokeswoman, although she declines to give a number. “But we don’t differentiate between them and Czechs.” HVB’s spokesperson, Petra Kopecká, points out that English is spoken by all bank advisors and contracts are also available in that language. “Foreign customers are a significant group for us,” she says, adding that synergies with the corporate division help target these clients.

Jason Hovet

Czech rich join the elite club

LuxembourgPhoto: www.isifa.com

While local players step up services for VIP clients, the country’s wealthy are also drawing attention from abroad. A number of important private banking outfits may enter the Czech scene specifically to court this segment.

One example is the exclusive Luxembourg-based Banque Privée Edmond de Rothschild Europe (BPEDRE): last May it held a private banking seminar in Prague for 38 potential customers to introduce them to the advantages of banking in Luxembourg. “We got a very good reaction,” says Alain Mestat, the bank’s director of marketing and communication. Working from Luxembourg, BPEDRE’s Czech client list is still relatively small, however Mestat says 10-20 high value clients would be ideal.
Besides clients with megamillions, the increasing amount of lower-tier high net-worth individuals (HNWs), those with assets of USD 1 million or more, is also a big reason for private bankers’ growing interest. “There is a tremendous entrepreneurial spirit [here] which is creating new wealth,” Mestat says. Many are hoping to catch these nouveaux riches at the early stages of wealth. According to UK-based wealth management consultancy Scorpio Partnership, Czech HNWs are valued at an estimated USD 38 billion; USD 25 billion of this is in the hands of individuals with wealth of between USD 1 million to USD 5 million.
In central and eastern Europe, the Czech Republic has one of the most developed private banking markets. “Next to Russian clientele, Czech customers are the most important [for us in this region],” says Daniel Kuffer, managing director of private banking at Dexia Banque Internationale ą Luxembourg (BIL), a subsidiary of the French-Belgian group Dexia. BIL started a Luxembourg-based private banking center for the CEE region in the late 1990s, and since then has expanded from three advisors to 15, including two Czechs, who regularly visit to meet with clients here. “It’s an interesting market for us and it’s exceeded our expectations,” Kuffer says without disclosing client numbers, although he adds the bulk of clients are middle-aged entrepreneurs.
Still, newcomers will have to contend with the dominant Swiss position, with UBS, which caters to clients through its Austrian branch, and Credit Suisse among the world’s top three private banks, according to assets managed. “Swiss private bankers were among the first covering the Czech market early in the 1990s,” says Catherine Tillotson, head of research and a partner at Scorpio Partnership. “The banks had no presence in the local market, but sent in ‘suitcase private bankers’ to meet local HNW clients.” In the future, finding – both offshore or onshore – clients will get tougher. “The Czech market is probably the most competitive in the region,” Tillotson says, “and some players have already exited the market because it has become too competitive from a private banking perspective.”